SMBs To Spend 15 Percent Higher On Packaged Software: AMI

Small and medium businesses (SMBs, or companies with up to 999 employees) in India are on track to invest about $860 million buying packaged software this year, up almost 15 percent over 2008. The estimated growth level is down amid this current economic slowdown, but still much better than other geographies.

In 2008, small businesses (SBs, or companies with up to 99 employees) posted a 21 percent rise in software spending, while medium businesses (MBs, or companies with 100 to 999 employees) showed a much lower 12 percent growth in the same spending category last year. 2008 displayed good traction for productivity suits, collaborative tools and even high-end applications like BI tools, middleware, security/ storage applications and network management tools.

“Buying behaviour and purchase decisions have become very formalised and systematic,” says Nirupam Chaudhuri, senior research manager with AMI-Partners. “There is increasing pressure on the technology decision makers to ensure that application investments meet both short-term and long-term business and financial goals,” says Chaudhuri. India SMBs remain receptive to IT spending, especially when consistent with their efforts to leverage current IT, to enhance productivity, improve customer relations, and expand business capabilities. However, SBs in particular are looking for major cost savings.

Among verticals, the manufacturing and professional services sector together drove more than 47 percent of SB software spending–and 70 percent of MB software spend. Applications for productivity enhancements, accounts and financial solutions, advanced marketing and sales tools, analytics tools will find buyers even in current times of slowdown. IT vendors are looking at product innovations to help facilitate more availability, affordability and performance of solutions. On the other hand, business entities need to address challenges with regard to managing growth, profitability, providing superior customer service and meeting regulatory measures.

Consolidation and virtualisation solutions will find major takers, although adoption is still much lower than global standards. “Hosting service providers with third-party data centres have been leading adopters of virtualisation,” Chaudhuri says. Various users are in different phases, starting from conceptualisation, architecting and final deployment. “Customer base will increase manifolds in coming times amid focus to leverage existing IT and more utilisation of resources in place. Scale is essential to get full potential of virtualisation; below some trade-off points these solutions are not yet cost effective.”

Companies in India show high awareness but low enthusiasm for software as a service. “In these times of tech slowdown, lower initial capital investments for SaaS applications is to be expected,” Chaudhuri says. “The proliferation of broadband with increasing speeds has been a major influencer for increased interest in SaaS. The scenario in India has to improve a lot more.” ISVs have to think of innovative business models to support installations; advertisement revenues also can be explored to keep user costs down.

To support ISVs, SaaS hosts can provide them with value-added services like SLA monitoring, billing, etc. Post-sales support services and maintenance are major activities for partners in this domain. Implementation activities are rising in association with primary SaaS solution vendors. Integration of SaaS offerings with remaining in-house applications is also a major activity.